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Essay on Mean Approach & Beta Approach in Stock-Investing

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1. INTRODUTION
This report aims at implement two distinct approaches, which can indicate the expected return and risk of a two-stock portfolio, to generate a practical solution to risk-analyzing for stock-investing. The two approaches are Mean-Variance Approach and CAPM Approach. While we apply the Mean-Variance Approach to determine the expected return and standard deviation, we employ the CAPM approach to measure the beta and expected return of each stock. The calculations of the aforesaid mathematical characteristics will contain the weekly returns during a seven-year time period integrated with the ASX all ordinaries Accumulation Index as a substitute for the market index and Official Cash Rate (thereafter, OCR, which is the interest …show more content…

As for the portfolio, the expected return for a portfolio is the weighted average of the expected rates of return for the individual investments in the portfolio. The variance of the portfolio returns is a weighted sum of the covariance and variance terms associated with the assets in the portfolio. 41 possible portfolios contains DJS and BHP with different weights starting at 100% invested in BHP and increasing the weight at 2.5% intervals until it reaches 100% in DJS.
See Appendix A3 for the table
|Portfolio No. |DJS |BHP |Expected Return |Standard deviation |
|1 |0.00% |100.00% |0.535115% |4.866364% |
|22 |52.50% |47.50% |0.525368% |4.179564% |
|… |… |… |… |… |
|41 |100.00% |0.00% |0.516550% |4.776287% |

The following line graph displays the 41 possible portfolios. The x-axis shows standard deviation, while the y-axis in the graph shows expected return. The graph

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